Monday, July 7, 2008

Know when to sell

When to sell? When to sell? That's the question SmartStops hopes to answer, and it's profiled in Barron's this week.

When the market is going up, the calculation is designed to give the investor more room to generate added profits. When the market heads down, the exits are moved closer to the current stock price so as to preserve capital. The proprietary calculations are intended to avoid reacting to "market noise" or random events. That way, said Collins, the system avoids whipsaw changes or premature exit triggers of trailing stops. The company is reluctant to go into too much detail about the system beyond the fact that many of its indicators are based on technical analysis.

During the beta, we had a list of 10 stocks, including Google, Intel and IBM, we were following on SmartStops. Eight of them hit short-term exit points during the week of June 23, mostly late in the week when the market fell sharply. We got a sell signal at $21.75 on Intel, for instance, which subsequently dropped to $21.57. SmartStops members receive an e-mail alert when an exit point is reached, and can also check the Website during the trading day to see new recommendations.

OK, so they don't tell you much about what goes into their calculations for the sell price. According to the article, it works:
SmartStops executives showed us a comparison of three investing strategies for the S&P Depository Receipts (SPY) over a 10-year period. The short-term SmartStops strategy ended up with the highest profit, and unlike buy-and-hold, had the investor in the market just 57% of the time. The long-term exit strategy also out-performed a buy-and-hold approach, and was in the market 84% of the 10-year period. Collins says, "We're showing that we can improve people's returns with less risk and less exposure to the market."
The free service of the site is easy to use. After accepting the terms and conditions, you can type in a ticker symbol and it gives you the short-term and long-term sell prices (a 6 month time frame is the delineation between short- and long-term). These are the prices recommended for loss avoidance.